The European E-commerce Directive passed in May last year looks good for consumers, but it may be a further nail in the coffin for online retailer

Christopher Field

In December 2000, dotcoms were going bust at a rate of one every 15 minutes; clearly, the last thing e-tailers need is yet more obstacles put between them and the faint hope of one day making a profit. But that is precisely what the European E-commerce Directive, passed in May, will do. It will enable consumers to sue e-tailers based in another country under the laws of their own country.

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The directive, to which e-tailers must comply by the end of 2001, did not set out to be quite so draconian. It establishes the "country of origin" principle, which means online businesses will only need to follow the laws of their own country. It is designed to protect consumers who may be reluctant to make purchases from other EU countries if it means giving up the legal protection they receive in their home nation.

Under the new regulation, a German consumer making a purchase from a UK site can sue under German law. To protect consumer interests online, the directive also establishes a framework for out-of-court settlement of cross-border disputes.

So far so good, but a subsequent Brussels regulation, which came into force immediately on ratification, forces European e-tailers in any one country to abide by the consumer laws of all 15 member states.

Consumer rights advocates say such reassurance is essential for the uptake of e-commerce. Mike Pullen, e-commerce lawyer at legal firm Dibb Lupton Alsop (DLA), rejects this assertion. "This obsession consumer rights groups have with security is nonsense; three million European consumers regularly buy books from Amazon.com, so we can assume they have no problem with the way e-commerce works."

Common sense, however, suggests that it will be a disaster for e-commerce in Europe, forcing small businesses to sell only to consumers in their own nation if they want to avoid the cost of knowing what is legal and what is not in different countries. This will immediately play into the hands of retailers with the size, experience and money to afford not only to build sites that meet legal requirements in each country but to fight actions brought by consumers and backed by their national courts.

Pullen also rejects this assertion, claiming that a retailer could easily end up being judged to have targeted a consumer in a particular country even if he had not intended to. He explains: "For a business to be prosecuted it must be deemed to have been targeting the consumers of that country. How is this proven? With difficulty. If the lower courts in the consumer's country believe that the website has targeted the litigant, then that's that."

Ministers had tried to introduce common sense measures while the directive was being drafted, but these were overturned by consumer groups. In April, UK e-minister Patricia Hewitt called for industry consultation over the European Union's controversial plans for online trading laws. Hewitt was in favour of arbitration rather than legislation and supported the idea of a European 'ombudsman' for the Internet to adjudicate each case on an individual basis. Retailers, however, would need to be confident that this ombudsman had real power and that the bureaucracy that would inevitably grow up to support any action would not be a cost passed on to retailers.

Spanish MEP Ana Palacio got round the law forcing e-tailers to abide by the consumer laws of every separate member state, by letting them put a disclaimer on their sites announcing their country of origin. She also put forward a plan that would have given consumers the choice of an out-of-court settlement, or alternative dispute resolution (ADR) offered by the supplier.

Consumer advocates again reacted negatively, arguing that it would be a burden on shoppers to sue anywhere other than their home countries. They argued that the proposed ADRs gave e-tailers too much freedom to dictate terms of redress to consumers.

UK MEP Diana Wallis has since outlined a more centrally regulated ADR framework. Mike Pullen said, "The worrying prospect is that any ADR systems will have to be accredited by the European Commission. What you will get is a set of bureaucrats sitting on tribunals and giving decisions against industry."

While the prospects for pan-European online retailing may look bad, overall, total spend is rising, suggesting that while some consumers may be reticent to buy online, millions are not. More than 52 million orders were placed online in the US alone during the 2000 holiday season (20 November to 26 December) and total e-commerce sales exceeded $6bn (£4.05bn), according to Bizrate.com, a Web comparison-shopping marketplace. During the comparable period last year, sales reached $3.75bn (£2.5bn) with nearly 38 million orders placed online.

Legal redress: The directive

The E-commerce Directive aims to ensure the free movement of electronic goods and services by authorising operators to provide information services throughout Europe subject to compliance by the operator with the laws of its home member state. Additionally, the directive obliges member states to remove any restrictions on the use and recognition of electronic contracts; limits the liability of third-party intermediaries that play passive only roles in the delivery of information services; subjects commercial communications to certain transparency requirements; calls for efficient, online redress of complaints and dispute resolution; and finally, establishes an aggressive timetable of 18 months for transposition into member states' domestic laws.

Bottom line: pros and cons for businesses

Businesses have generally welcomed the directive because it will bring more consumers to their websites. However, the bottom line is that, with the additional Brussels Regulation that forces businesses to comply with the laws of all 15 member states, then already narrow sales margins will be threatened by the cost of compliance and of paying out to consumers in the event of a successful prosecution.

Bottom line: pro and cons for consumers

The Brussels Regulation, in theory, gives consumers shopping online the same protection afforded to them under laws governing national bricks-and-mortar retailers. It is this protection that, again in theory, will give consumers that are currently worried about buying online, the confidence they need to log on.

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